British, S. Korean airlines are fined

Penalties in millions for price-fixing

August 02, 2007|By Peter Pae | Peter Pae,Los Angeles Times

British Airways PLC and Korean Air Lines Co. Ltd., two large foreign carriers, each have agreed to pay $300 million in fines and plead guilty to federal charges that they colluded with other airlines to set ticket prices.

The fines are the second largest ever obtained by the Justice Department and are expected to be the first of several stemming from a two-year investigation into fuel-related fees that international carriers charged cargo customers and passengers - some as high as $110 per ticket.

"The crimes committed by Korean Air and British Air are among the largest and far-reaching antitrust conspiracies that we have ever detected," said Scott Hammond, deputy assistant attorney general for antitrust cases. "Virtually every American business and consumer was impacted by these crimes."

For now, passengers and cargo customers likely will not see a dime of the $600 million in fines that the U.S. will collect if the plea agreements are approved by a judge. A Justice Department spokeswoman said the money will go into a federal crime-victims fund and will not be disbursed to affected passengers, who would have to seek compensation directly from the airlines.

Making matters more complicated, Justice officials said that while passengers flying on the two carriers paid more for their tickets as a result of the "illegal cartel," they could not say how much of it could be considered overcharge and subject to restitution.

It noted, for instance, that in 2004, the fuel surcharge paid by passengers was about $10 a ticket, and by the time the cartel was broken up last year, it had increased to about $110 a ticket.

But exactly how much of that was improper is unclear, a department official said, since fuel costs did increase.

"The reason why I can't answer that question, just to be clear, is because these conspirators managed to foil the free-market system," said William W. Mercer, acting associate attorney general.

The airlines, while admitting to colluding with each other on setting the fuel fee, contend that the surcharge itself was not illegal and was not price-gouging.

Speaking to reporters in London, British Airlines chief executive Willie Walsh said the fuel surcharge increases came as crude oil prices surged.

"I want to assure our passengers that they were not overcharged," Walsh said. "Fuel surcharges are a legitimate way of recovering costs. However, this does not in any way excuse the anti-competitive conduct by a very limited number of individuals."

Several British Air executives caught up in the probe have resigned or have been placed on leave. In addition to the U.S. fine, British Air agreed to pay a $247 million fine to the British government for discussing the fuel surcharges with Virgin Atlantic Airways.

U.S. officials said British Air and Korean Air also were involved in a conspiracy with German carrier Lufthansa AG to fix charges for international cargo shipments.

Virgin Atlantic and German carrier Lufthansa have been cooperating with investigators and are in a conditional "leniency program," under which they can avoid conviction and fines. Separately, Lufthansa said it is in the process of settling a class action lawsuit that would pay $82 million to its cargo customers.

In a statement, Korean Air said it was cooperating with federal investigators and "is pleased to be among the first airlines to have reached a full resolution of the matter."

Peter Pae writes for the Los Angeles Times. The Associated Press contributed to this article.

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